(Sharecast News) - European shares closed lower on Thursday after both the European Central Bank and the Bank of England left interest rates unchanged, while renewed concerns about heavy artificial-intelligence spending by large technology firms weighed on global risk sentiment.
The pan-European Stoxx 600 fell 1.07% to 611.53, with Germany's DAX down 0.63% at 24,448.58, France's CAC 40 lower by 0.29% at 8,238.17 and the UK's FTSE 100 slipping 0.9% to 10,309.22.
Dan Coatsworth, head of markets at AJ Bell, said "the FTSE 100 dipped on decision day for the Bank of England as ripples from the Anthropic-driven sell-off continue to be felt," highlighting how pressure on technology and data-related stocks has continued to spill into broader markets.
Sentiment deteriorated overnight after Alphabet reported strong earnings but said it would sharply increase capital expenditure on AI, flagging spending of $175bn to $185bn this year, well above expectations.
The announcement revived investor unease over elevated valuations and the scale of investment required to support AI growth.
Coatsworth said Alphabet's results showed "much to like," with revenues and margins improving, but added that "what's left a bitter aftertaste is guidance for a considerable increase in spending, precisely the type of news that investors are finding hard to digest across the tech space."
Patrick Munnelly, market strategy partner at TickMill, said the broader backdrop had already turned fragile, noting that "traders stepped away from megacap tech - long treated as a safe-haven trade thanks to steady earnings - and began leaning toward a wider set of companies tied to improving economic conditions," a rotation that was undermined by renewed technology selling in Asia and weaker after-hours reactions in US tech stocks.
ECB, BoE both keep rates on hold
On the monetary policy front, the ECB held its deposit rate at 2% for a fifth consecutive meeting, reiterating that inflation should stabilise around its 2% target over the medium term.
The central bank described the economy as resilient but highlighted ongoing uncertainty from global trade policy and geopolitical tensions, and said policy decisions would remain data-dependent and taken meeting by meeting.
Munnelly earlier said the meeting was "unlikely to bring surprises," adding that recent data showed inflation remained subdued, with headline inflation at 1.7% year on year and core inflation easing to 2.2%, while growth was "slightly ahead of expectations, supported by fiscal measures and eased monetary policy, but not enough to alter rate forecasts."
The BoE meanwhile also kept rates on hold, with its Monetary Policy Committee voting 5-4 to maintain Bank Rate at 3.75%.
The narrow margin boosted expectations of a cut in coming months, potentially as early as March, despite inflation still running at 3.4%.
Coatsworth said markets had largely anticipated the decision, noting that "attention will be centred on the balance of votes and whether this shifts the calculus on the timing and trajectory of rate cuts through the remainder of 2026."
Munnelly said domestic markets had been braced for a hold, with focus on "the divided Committee's individual views in the minutes," as investors weighed easing signals against lingering concerns over wages and labour-market tightness.
Fresh data paints mixed picture
Economic data across Europe was mixed.
Eurozone construction activity contracted at its fastest pace in three months, with the HCOB construction index falling to 45.3 in January as new orders declined sharply, particularly in France and Germany.
Eurozone retail sales volumes fell 0.5% in December, worse than expected, led by a 1.2% drop in non-food products, although year-on-year sales still rose 1.3%.
In contrast, German factory orders jumped 7.8% month on month in January, far exceeding forecasts, driven by large-scale orders and strength in machinery and metal products.
Munnelly said the macro picture remained complicated by external risks, pointing to higher oil prices following reports of setbacks in US-Iran nuclear talks and weakness across commodities and cryptocurrencies as risk appetite faded.
In the UK, construction activity remained in contraction but showed signs of stabilising, with the S&P Global construction PMI rising to a seven-month high of 46.4.
UK new car registrations rose 3.4% in January to 144,127 units, the strongest start to a year since 2020, although growth in battery electric vehicle sales slowed sharply.
Volvo Cars plummets on earnings, Pandora sparkles
In equities, Volvo Cars plummeted after reporting a 68% drop in fourth-quarter operating income, while Shell slid after posting a sharp decline in quarterly earnings.
Coatsworth described Shell's update as "a pretty ugly set of numbers for the company," adding that while commodity price volatility was expected, "investors may be more concerned by rising operating expenses - something which should be within Shell's compass to control."
He said the company appeared to be "going out on a limb to maintain its generosity to shareholders," even as debt edged higher.
Maersk also dropped after warning that falling freight rates would weigh on profits this year, and Rheinmetall weakened on cautious preliminary revenue guidance for 2026.
On the upside, shares in Rational surged on stronger annual revenue growth, and Pandora gained after announcing plans to introduce platinum-plated jewellery to reduce its exposure to rising silver prices.
Reporting by Josh White for Sharecast.com.
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